By William Opalka

Niagara Mohawk Power has agreed to reduce its return on equity in a settlement with groups representing public power and municipal utilities.

If accepted by the Federal Energy Regulatory Commission, the settlement would reduce the ROE in Niagara Mohawk’s transmission service charge to 10.03% from the current 11.5%. The new rate would be backdated to Nov. 2, 2012, resulting in a refund of $3.16 million.

The Municipal Electric Utilities Association of New York, the New York Association of Public Power and Niagara Mohawk, a unit of National Grid, filed the settlement with FERC last week.

The settlement arose from complaints filed by the associations against the transmission owner and NYISO claiming that the current rate was too high (EL12-101, EL13-16 and EL14-29). FERC consolidated the cases and an administrative law judge facilitated negotiations.

The case began in September 2012, when the public power association filed complaints to reduce the current 11.5% ROE to 9.49%, including a 50-basis-point adder for participation in NYISO. The municipal utilities filed a similar complaint two months later seeking to reduce ROE to 9.25%, also including the participation adder. Last year, the public power group filed another complaint seeking a further reduction from its original complaint to 9.36%, citing the fall in interest rates.

The groups gained leverage in the negotiations last June, when FERC ordered a new ROE formula and tentatively set the “zone of reasonableness” at 7.03% to 11.74%. (See Report: PSEG, AEP, FE at Risk under New Returns on Equity Rates.)